Federal aid helps bring added $3.5 billion surplus to Michigan
LANSING—The billions of dollars sent to Michigan in federal relief funds have helped the state see a dramatic increase in revenues.
The latest data was released Friday morning at the state’s Consensus Revenue Estimating Conference, which agreed that federal help and a rise in consumer spending on goods have helped the state to a $3.5 billion budget surplus, far beyond what was estimated in January.
The latest information will be used by Democratic Gov. Gretchen Whitmer and the Republican-led legislature as they move forward with budget negotiations following an agreement Thursday to work together after a months-long political standoff.
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“The revised revenue projections demonstrate our success in effectively handling the pandemic and helping the economy recover quickly,” Whitmer said in a news release.
State Treasurer Rachael Eubanks told reporters that federal stimulus programs such as the American Rescue Plan Act “have continued to benefit our economy, producing a tremendous boost to our state’s future economic outlook and revenue picture.”
Earlier this month, the Biden administration announced that Michigan is slated to receive $6.5 billion from the federal government as part of the American Rescue Plan. The state has until 2024 to spend the funds on issues such as health care, essential worker pay, and infrastructure projects.
In January, the state had forecasted $24.3 billion in general fund and school aide revenues for the 2021 fiscal year which ends Sept. 30, and $25.3 billion for fiscal year 2022.
But the revised forecast presented Friday estimates the state’s combined general fund and school aide revenues for fiscal year 2021 reaching $26.31 billion, $2 billion more than earlier projected. The updated forecast for fiscal year 2022 is $26.8 billion, about $1.5 billion more than anticipated in January.
State Budget Director Dave Massaron said the new forecasts give the state an opportunity to make “transformational investments.”
“This gives us real resources to solve the real problems that exist in our state,” Massaron told reporters.
It’s unclear how the new revenue forecast will shape spending priorities, but the Whitmer administration could try to support working mothers in the state with additional investments.
Women nationally have borne the brunt of job losses during the COVID-19 pandemic, and that has been true for Michigan.
According to data presented by the Bureau of Labor Market Information and Strategic Initiatives, from February 2020 through the end of 2020, 127,000 women dropped out of the workforce. The bureau said working mothers with children under the age of five remain below pre-pandemic workforce participation rates. Working fathers are back to normal rates.
Masseron said the state has $1.4 billion that could be used for increasing access to childcare.
“Providing additional quality childcare opportunities for working, particularly women, mothers, across the state would be a tremendous help to kind of restart that workforce,” he said.
A warning: Revenue outlooks could change
Despite state officials expressing optimism about the latest numbers, Eric Bussis, the chief economist at the Michigan Department of Treasury,
warned that some factors could still derail the projected revenues, which includes another surge of the deadly virus.
“We continue to believe that the path of the pandemic is still the largest risk for both the U.S. and Michigan economy,” Bussis said at the conference.
He said there is also a question of whether the economy can rebound without additional support from the federal government.
That’s a sentiment shared by House Appropriations Committee Chair Thomas Albert. The Lowell Republican said revenues “are good,” but added that they were “artificially propped up by federal COVID relief funds.”
“I’m deeply concerned that the same federal policies causing short-term revenue gain could lead to inflation and other monetary pressures that might hurt our economy in the near future,” Albert said in a news release. “Fiscal and monetary policies like this are unsustainable in any nation.”
Eubanks, the state treasurer, said her office acknowledges there might be some initial signs of inflation. However, she said, she didn’t think “it's something that any of the economists today told us that we should be gravely concerned about.”
With money comes requests
The news about the projected revenues has already motivated advocacy groups to ask the legislature for additional funding for schools and other causes.
The Michigan Association of State Universities encouraged lawmakers to use part of the surplus to increase funding for the state’s 15 public universities.
Daniel Hurley, CEO of the association, said in a statement that adding more funding “will increase college affordability, help maintain and enhance high educational quality, and strengthen the state’s capacity to create and sustain a talented workforce that is able to attract and retain leading edge employers.”
A recent budget proposal approved by the House of Representatives would change how the money — about $1.5 billion — would be split among the universities.
The University of Michigan, for instance, would see a 12 percent cut if the House proposal is approved, which constitutes to about $40 million.
Hurley noted that the governor and the Senate have endorsed a one-time 2 percent increase in operating funding for fiscal year 2022. He proposed using part of the surplus to make that funding increase permanent.
“Michigan has fallen from 20th to 44th in the nation in per-capita support for higher education as a result of $1 billion in state funding cuts and inflation over the past two decades,” Hurley said. “Twenty years of bad higher education finance policies are leaving many middle-class high school graduates behind.”
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